Mortgage prisoners may not benefit from new rules

Derin Clark

The Financial Conduct Authority's (FCA) planned changes to its responsible lending rules may not help as many mortgage prisoners as originally believed, the Government has confirmed.

John Glen MP, economic secretary to HM Treasury, has written to Nicky Morgan MP, chairman of the Treasury Select Committee stating that it is not "feasible" to require those organisations that purchased the loans of mortgage prisoners to offer new mortgages.

In addition, the planned changes for affordability rules from the FCA are also unlikely to help if lenders decide not to use them. Andrew Bailey, chief executive of the FCA, has stated that this choice "will be a commercial decision for individual lenders based on their risk appetite."

For now, it seems mortgage prisoners will need to wait a little longer before a solution is reached to help them access lower mortgage rates than they have today.

Who are mortgage prisoners?

A mortgage prisoner is a borrower trapped in a higher interest rate with unauthorised firms or inactive lenders who, due to a range of circumstances, cannot move to a mortgage lender offering a better rate. There are currently about 120,000 mortgage prisoners with unauthorised firms and 20,000 with inactive lenders.

After the financial crisis in 2008, some mortgage borrowers found their mortgage had been moved from their original lender to a third party; often referred to as an inactive firm or unauthorised firm. These organisations do not offer new mortgages and as a result, borrowers ended up trapped on high variable rates.

These borrowers were often those in negative equity or those who had borrowed at salary multipliers greater than the standard used before responsible lending rules were introduced in 2014.

In 2014 mortgage prisoners' woes were compounded further, while the responsible rules aimed to not create mortgage prisoners in the future, those already trapped now were even less likely to meet a new lenders' requirements for a mortgage.